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At Forbes, I explain how monetary policy and the control of the US dollar is actually shared between the Fed and the People's Bank of China:There has been a sort of trade war going on between the US and China for a long time. It surfaces briefly during election campaigns – remember Mitt Romney promising to end China’s “currency manipulation”? But the rest of the time it simmers coldly under the surface.The chief protagonists in this war are the two central banks – the Federal Reserve and the People’s Bank of China (PBOC). And the principal weapons are US dollars and US Treasuries (USTs).
Read the whole post here.

The Independent reports that the UK Government is using debt collection agencies to recover overpaid tax credits from some of Britain's poorest families. In many cases the debts are due to errors by HMRC. And in many more cases they are due to fundamental flaws in the design of the system. Some are due to errors on the part of the claimants. Few, if any, are due to fraud.
The tax credits system is complex. But the fundamental problem is simple. The design of the system does not match the reality of people's lives.....
Read on here.

(lines and QE annotations mine)
Every time QE is announced, yields rise: when it ends, they fall. And no, this doesn't just affect the 10-year yield. The same basic shape can be observed on just about any maturity over 1 year (short-term rates are propped up by the positive IOER policy).

I've written about this before, and concluded on that occasion that the rise in yields was due to the closed-end nature of previous rounds of QE bringing forward sales that would not otherwise have happened and encouraging carry capture strategies due to raised inflation expectations. I expected therefore that if QE was continued for long enough, or announced in a way that indicated no definite end, yields would fall as expected rather than rising. But it seems this is not the case. The current round of QE was announced in September 2012 with no end date for purchases. But yields started to rise soon after it was announced: admittedly they rose more gradually than in…

My latest post at Pieria traces the history of welfare from the fourteenth century and finds the same two mistakes being made again and again - right up to the present day. We try, and fail, to distinguish between those who deserve support and those who do not. And we try, and fail, to compel people to work. The consequences of both failures are terrible, both for those directly affected and for society as a whole. It's time for a completely new approach.

My latest post at Forbes looks at the criminal penalty handed down to Credit Suisse for its part in helping high net worth US citizens evade tax. In no way does it fit the crime - and why have no top executives been prosecuted? Even more importantly, why have the names of the tax evaders themselves not been revealed? This is no way to convince the world that the US is serious about cleaning up banking.

Gold fixing, this time. Here's the FCA's summary:
The Financial Conduct Authority (FCA) has fined Barclays Bank plc (Barclays) £26,033,500 for failing to adequately manage conflicts of interest between itself and its customers as well as systems and controls failings, in relation to the Gold Fixing. These failures continued from 2004 to 2013.
It seems to have been a rogue trader, one Daniel Plunkett, who rigged the 3 pm Gold Fixing to avoid making a payment to a customer. He has been fined as well and struck off by the FCA.

But the timing is exquisite. The very day after Barclays was censured by the FCA for rigging Libor and Euribor, Plunkett rigged the gold fixing in his favour. Clearly nothing had been learned from the FCA's enforcement action. This is worrying, given the high profile of the FCA's investigation into Libor-rigging at Barclays, and the fact that it cost the bank its CEO as well as regulatory fines and untold reputational damage.

"Inflation", said Milton Friedman, "is always and everywhere a monetary phenomenon". Upon this statement has been built three decades of faith in the omnipotence of central banks. It does not matter what government does: it does not matter what markets do: it does not matter what shocks there are to the economy. As long as central banks get the money supply right, there will be no inflation. Or deflation. Growth will simply proceed smoothly along a pre-determined path.

Leaving aside the question of whether central banks really control the money supply at all in an endogenous fiat money system, it is clear to me that the control of inflation - in all its forms - is by no means so simple. Despite Friedman's statement, the forces that create inflation and deflation are in reality poorly understood. The delicate balance between supply and demand in a monetary economy is easily disrupted: shocks to supply or demand reverberate around the economy in a manner similar …

My latest post at Forbes looks at the troubled Deutsche Bank and its latest attempt to improve its capital ratio: Deutsche Bank has finally admitted – to no-one’s surprise – that it needs more capital. It has announced plans to raise 8bn EUR of new Core Tier 1 equity capital (CET1).Although everyone knew Deutsche Bank was short of capital, this admission is nevertheless somewhat embarrassing. Only last year, Deutsche Bank raised 3bn EUR with a rights issue and claimed that no further capital would be needed. Yet recently it announced plans to raise up to 1.5bn EUR of “additional capital” – debt which can convert to equity if CET1 falls below an agreed level. Now it seems even more of the best quality capital is needed as well. What on earth has gone wrong?
Find out here.

The last few weeks for the Co-Op could perhaps be called “a
tale of two reviews”. Firstly, there was Sir Christopher Kelly’s report into
the disastrous takeover of Britannia Building Society by the Co-Op Bank.
Secondly, there was Lord Myners’ review of governance in the Co-Op Group.
Sir Christopher Kelly’s report tells a shocking story of deceit,
corruption and utter incompetence in both the Co-Op and Britannia, both before
and after the merger. The true state of Britannia’s balance sheet appears to
have been deliberately concealed from those tasked with doing due diligence,
and there were financial shenanigans designed to create the illusion of value
when in reality value was being destroyed.
Britannia was by no means a sound business prior to the merger: it had
extensive subprime mortgage exposure and a highly leveraged (and it now
transpires, overvalued) commercial property book. But what I find more worrying
is the evidence that AFTER the merger the enlarged Bank was not in cont…

My latest post at Pieria looks at the social and personal costs of economic migration:Economists like people to move around. Where there is completely free movement of labour, long-term unemployment should not exist: there may be short-term unemployment, but this will dissipate as people leave regions where jobs are disappearing and move to places where new jobs are being created. If there is long-term unemployment, therefore, labour market reforms are needed to encourage people to “follow the work”..........But even when there are completely open borders, labour does not move freely. It seems people are not actually that keen on chasing jobs. Many would rather stay where they are even if it means a sharp drop in their standard of living. The threat of starvation does tend to make people move, though even then some people choose to stay and starve. But if there is any sort of safety net, then people are likely to stay put.
I go on to discuss the reasons for their reluctance. The &quo…

My latest at Forbes considers the future of investment banking in the light of cutbacks in just about all global investment banks due to regulatory pressures and changing investor preferences. Barclays is late to the party:In the wake of a disastrous performance in fixed income & commodities (FICC) trading, Barclayshas announced severe cuts to its investment bank. 7,000 jobs are to go over the next two years, and much of the troubled FICC division is to be thrown into a new internal “bad bank” for eventual sale or winding up. Investment banking is to be reduced to no more than 30% of the Group’s asset base, and rather than trading, its focus is to be on client advisory services, wealth and asset management. The Diamond days, when investment banking was Barclays’ largest and most profitable activity and its ambition was to be among the premier global investment banks, seem to be well and truly over....
Read on here.

So, we're moving nearly all OTC derivatives trading to Government-backed central counterparties (CCPs). All market participants can now be allowed to fail without endangering the system. We may not have ended Too Big To Fail in banking, but we have in OTC trading.

Martin Wolf is the latest in a long line of people to propose full reserve banking and removal of banks "money creation" powers. But as I noted when I reviewed the IMF researchers Benes & Kumhof's proposal for full reserve banking, this would mean the death of commercial banking. Maybe that's not such a bad thing.....but wouldn't it be better to say so directly?